After years of negotiations, the neighboring Anhui and Zhejiang provinces in east China have finally reached a consensus over environmental compensation concerning the Xin’an River. According to the agreement concluded earlier this month, the Central Government will allot 300 million yuan (46 million USD) to Anhui for treatment of the Xin’an River. The agreement is, if the water quality around the border of the two provinces improves in three years, Zhejiang will give 100 million yuan to Anhui; if the water quality deteriorates, Anhui will give 100 million yuan to Zhejiang. But if there is no change in water quality, there will be no required compensation.

The 359-km-long Xin’an River runs from Huangshan City of the less developed Anhui province into the Qiandao Lake of the wealthy coastal Zhejiang province. Qiandao Lake, or Thousand Island Lake, is a famous tourist attraction in China. Home to the renowned Nongfu Spring, a brand of mineral water, Qiandao Lake is furthermore a crucial source of drinking water for Zhejiang and even Shanghai. Over 60 percent of its water storage comes from Huangshan in the upper reaches of the Xin’an River. However, the domestic and agricultural sewage from Huangshan has put Qiandao Lake at serious risk of eutrophication. Negotiations between the two provinces began in 2001 but yielded no fruit until recently. The core of the conflict has been Anhui’s eagerness to boost its weak economy by developing industry, hence the huge sacrifice it has to make in order to protect Zhejiang’s clean drinking water.

So far, the Huangshan government has started to dismantle fish cages along the river because the feed for fish can undermine water quality. Fish farmers will receive compensation (23 yuan per square meter for bamboo cages and 45 yuan per square meter for steel cages) from the local government and may turn to tourism for new forms of livelihood. Currently, the two provinces are still debating about where and how to measure water quality as any specific choice may tip the balance of their bet. However, the case has already been hailed by the Chinese media as a model for resolving cross-provincial water disputes in a country where tensions over water are increasing and compensation is seen as a potential solution.